ALROSA is in no rush to kick off an initial public offering (IPO) since the diamond market appears to be favorable so the offering may happen not earlier than 2013. Such a view of the situation was expressed by analysts polled by PRIME-TASS.
For the past ten years, ALROSA’s management have been talking about a possible IPO with a varying degree of intensity spending the same time for toying with the idea of making the company public.
As it was officially pronounced by ALROSA’s spokesman, “currently we are implementing the plan approved by the shareholders to transform the company from a closed joint stock entity into an open joint stock corporation. This will give us a tool to attract funds needed to fulfill our investment programs.”
"No other program is discussed and there are no decisions taken even about tentative terms for an IPO. The company will be turned public in the middle of 2011, and only after that it will be possible to discuss this subject in some way,” ALROSA’s representative added emphatically.
In 2010, Yegor Borisov was appointed as President of Yakutia, replacing Vyacheslav Shtyrov, who led the region since 2002 and hindered the company's reorganization. Many people viewed these changes as related to another attempt to reorganize the company for subsequent placement of its shares on the stock exchange.
In early October, the Parliament of the Republic of Sakha (Yakutia) amended the law of the republic "On management and disposal of shares issued by ALROSA," according to which the company can now be transformed.
Simultaneously, the president of ALROSA, Fyodor Andreev, said that the company was mulling how to attract $2 billion by way of additional issue of shares. In his view, to sell new shares will be possible after transforming the company - such a scenario would be "very bold and aggressive," Fyodor Andreev then said.
A little later the Chairman of the Supervisory Board of ALROSA, Russia’s Finance Minister Alexei Kudrin, said that ALROSA did not plan to hold an IPO; according to him, it will be possible after transforming the company into an open joint stock entity, but now this is not urgent.
The reason for these contradictory statements, according to a source familiar with the situation in the company, is the planned placement of Eurobonds and the preceding road-show.
In October, the three largest credit rating agencies upgraded the company's credit ratings: S&P to BB-; Moody's to Ba3; and Fitch to BB-; and at the end of October ALROSA successfully placed $1 billion worth of 10-year Eurobonds.
At the same time the company’s debt burden remains high - at the end of the 1st half of 2010 its debt was $3.5 billion.
Previously, it was reported that raised funds will be used to replace the current liabilities, but in early 2010, the company announced that it planned to begin underground mining, which would require significant investments. Theoretically, ALROSA may attract funds for its investment program by floating its shares, but given the complicacy and vague prospects for an IPO, it is most likely that the company will take a credit for its development from one of the state-owned banks.
Alexei Morozov of UBS says that the current situation in the diamond market has normalized compared with the previous year. "If incomes of the population will grow, demand will remain high. Thus, the situation in the diamond market is favorable, but this year ALROSA will not have time to carry out an IPO and the earliest it can do may be in the 2nd half of 2012 or even in 2013, since the company is in no wild rush to do it. It’s noteworthy that to attain a good level of liquidity the company should place at least a 20-percent equity package. ALROSA needs funds to implement its development programs and particularly to build underground mines," Alexei Morozov said.
"The complicacy of an IPO for ALROSA is that in the first place it is a closed joint stock company and it requires reorganization, without which it would be impossible to start corporate procedures to increase the authorized capital; and secondly, the company has a complicated structure of shareholders, where de jure the state owns more than 90 percent of shares, while de facto the state package is distributed between federal, regional and municipal authorities," the legal partner comments. According to the latter’s estimates, it may take 2 to 3 years for the company to get ready for listing.
According to Andrei Tretelnikov from Rye, Man & Gor Securities, “ALROSA’s IPO is a fiscal and political decision. In terms of attracting capital the company, in principle, does not require additional funds. ALROSA is freely served in the debt market as it is proved by its recent placement of Eurobonds. The balance sheet of this enterprise is also on a sustainable level. Thus, we believe that if an IPO is launched, it will be to attract capital to develop the iron ore project. However, according to the latest information, the company is attracting strategic investors into this project. An IPO will always be a strategic step in the development of any company, and for successful deployment ALROSA needs a well-designed development strategy."
Vladimir Zhukov, a Nomura analyst, says that "ALROSA does not generate a very large amount of cash, and given the large debt it has and the necessity of deepening its mines, the IPO looks best, but the company needs to conduct extensive preparation and decide who will sell the shares."
As it was previously reported, in 2010 ALROSA plans to gain 5.9 billion rubles of net profit and 118.6 billion rubles in revenues.
In 2009, ALROSA’s net profit by IFRS reached 3.4 billion rubles, while its revenue amounted to 77.9 billion rubles.
In October 2010, the Supervisory Board of ALROSA approved an updated financial and operating plan for 2010 setting the task to drive the company’s sales to $3.4 billion, investments to 30.3 billion rubles, and exploration expenses to 2.76 billion rubles.
ALROSA is a diamond monopoly, and its shareholders are Rosimuschestvo (51%), Yakutia’s Ministry of Property (32%) and Yakutia’s uluses, or municipalities (8%).
ALROSA is one of the largest diamond companies in the world, accounting for 25 percent of the global diamond output. In 2009, ALROSA Group produced $2,092.8 billion worth of diamonds while its sales of rough and polished diamonds reached $ 2,212.6 million.
